For $2,457, a car buyer can get a used 1995 Ford Mustang with 153,000 miles on it, or a brand new car from Tata Motors, the India car maker. The car market in the country is growing at the rate of almost 12% a year, while markets like the US are flat to down.
Nissan already has a car its sells in India for under $10,000, but to get deeper into the potential market, the price of new cars will have to come down.
Cheap cars are a double-edged sword for big car companies. GM, VW, Honda, and Ford have made good progress selling cars in China and are moving into India quickly. GM’s sales in China grew to over 867,000 last year, up 31%. But, while a US car company can make $4,000 or more on a large SUV or pick-up, the profits on a low-priced car may be harder to come by because the costs of commodities like aluminum and plastic are a higher portion of overall costs. And, those expenses are rising, at least for now.
Not being in the ultra-inexpensive car market has risks as well. Companies including Tata and Chery in China would rather see their cars in the hands of the locals. And, Tata’s new low-priced cars are a sign that they mean to do what they can to expand their piece of the market.
The manufacturing and design of inexpensive fuel-efficient cars could have an unintended consequence for a company like GM. While it may get market share in China, it could be, with some modifications, an import to the US market if gas prices continue to rise.
GM importing cars from India and China to the US? That’s rich.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
Top Gaining Stocks
Top Losing Stocks